September 28, 2011

It is common for people to purchase life insurance policies and then to place them in a file and subsequently forget to review them ever again. However, as life and circumstances constantly change, insurance, like other aspects of your financial plan, should be reviewed periodically to make sure everything is in order as you intend. Following are questions to consider when determining whether or not your life insurance needs changes:

Does Your Insurance Policy Meet your Current Goals?

When you initially purchased life insurance it was most likely for a specific purpose. Perhaps you wanted to ensure that your family has a financial cushion to replace your wages, payment for final medical and funeral expenses, providing for a mortgage or to cover estate taxes, among others. It is important to evaluate your policies to determine if your existing coverage is sufficient to accomplish your current objectives.

Is the Insurer on Solid Financial Ground?

You may want to review your insurer’s financial reports and credit rating to assure that the company is not experiencing financial difficulties. A.M. Best and Fitch are major credit rating agencies that can provide up-to-date financial information.

Is a Life Insurance Trust Appropriate?

Upon your death, the life insurance proceeds payable to your beneficiaries are included in your gross estate for federal and state estate tax purposes. In the event that your estate exceeds the current federal or state estate tax thresholds, establishing an irrevocable life insurance trust may be appropriate. Due to the complexity of an irrevocable life insurance trust and its stringent requirements, a consultation with an estate planning attorney is recommended.

Are Lower Premiums Available?

In the event that your health has improved or you have quit using tobacco since you purchased the policy, you may qualify for reduced premiums due to an upgraded health rating.

Are Your Beneficiary Designations Up to Date?

Since family dynamics change, like births, deaths and divorce, your beneficiary designations may have become outdated. This may result in the necessity to have the life insurance proceeds go through the probate process, or even worse, having the proceeds distributed to an unintended beneficiary, such as an ex-spouse. It is simple to request a change of beneficiary designation form from your insurance company to update your beneficiary information.

September 14, 2011

The general rule relative to Medicaid eligibility is that all transfers from a person are considered to be available to them for 5 years from the date of transfer, thus denying the person making the transfer from obtaining institutionalized benefits. This includes any portion of a trust that could be payable to him. However, with all ‘rules,’ there are exceptions, and Congress has exempted certain trusts from Medicaid’s available resource provisions, and from the transfer penalty provisions that apply to Medicaid long-term care services, so long as the trusts meet certain requirements.

For example, a special needs trust allows money to be set aside to provide for the special needs of individuals who require or may someday require Medicaid benefits, without affecting the beneficiary’s eligibility for these benefits. Likewise, a pooled trust is a type of special needs trust that is managed inexpensively by pooling large numbers of accounts, while providing disabled people with financial resources to be used for a variety of their needs.

In 2005, Pennsylvania enacted limitations (Section 1414) on the use of pooled trusts that imposed restrictions based on: the disabled individual’s age; the characteristics of the expenditures trusts can make to the disabled person; and what percentage of any funds remaining in the trust after the individual’s death can be retained by the trust to assist other individuals. The act also included a death penalty provision that allowed for termination of the entire trust for all beneficiaries if the trustee violated the act as to any single beneficiary.

In response to this legislation, two Pennsylvania pooled trusts and related plaintiffs filed suit seeking to prohibit the Department of Public Welfare from barring the provisions of section 1414 that restrict Medicaid eligibility and require a minimum of 50% state reimbursement from the pooled trust. A federal court, in the recently decided case of Lewis v. Alexander, ultimately held that much of Section 1414 is unenforceable because it is more restrictive than what is permitted under federal Medicaid law.

Specifically, the Lewis court held the following provisions unenforceable because they are in conflict with, and more restrictive than, controlling federal law:

The special needs requirement which requires that the beneficiary must have special needs that cannot be met without the trust;

The age requirement, and the court concluded that disabled persons age 65 and older may form a pooled special needs trust;

The expenditure restrictions that required all distributions to have a reasonable relationship to the needs of the beneficiary;

The 50% pay-back provision, which states that a pooled trust may only keep 50% of the remainder left in the account after the death of a beneficiary, without an obligation to reimburse the state for Medicaid expenses. The court held that pooled trusts may elect to keep the entire amount remaining in the beneficiary’s account at death; and

The court negated the death penalty provision.

Although the court prohibited the Department of Public Welfare from applying or enforcing the aforementioned restrictions, the remaining provisions of Section 1414 are still valid.

The decision in Lewis is a significant victory for special needs individuals, as it clarifies that disabled people age 65 and older are permitted to form pooled special needs trusts. This provides elder law attorneys and their clients with an additional planning tool to allow the creation and funding of trusts for a disabled person, even when it appears that a long term institutionalization may be at hand.

Of course, there are some adverse consequences, such as the fact that the funds are not repaid to the family after the death of the beneficiary. However, the funds are available during that person’s life, without the need to spend them for daily care, which is usually a preferred option, as opposed to spending the funds on long term care expenses, which would otherwise cause the entire sum to be expended without any possibility of use of the funds for non-necessary expenses.

This case is an important victory for individuals with disabilities and their families since it provides an alternative in the long term planning process. The area of special needs trust planning often requires updating and conforming to laws and regulations that may change. Therefore, one considering establishing a pooled trust or similar option should be sure to engage a qualified legal professional before merely signing up to fund a pooled trust.

September 07, 2011

A recent survey revealed that elder abuse has increased approximately 20% in the past several years. This takes on many forms, including physical, psychological, emotional, verbal, sexual, and financial. The most commonly recognized abuse that is reported is financial abuse as it often makes public news in the press, such as the case of Mickey Rooney.

Rooney testified to Congress relative to his own personal situation, whereby he was exploited by his won family and had to take legal action in order to recoup his assets and discharge family members as his decision makers. Unfortunately, abuse does not become apparent in many cases until it has occurred. Once it is recognized, it is often too late to recoup assets, as the perpetrator has already spent the money or has no assets from which to recoup the funds.

Most states have recognized financial abuse as a crime, and in some cases, a felony. The following are several warning signs to look for in the case of suspected elder abuse, which may warrant further review and investigation.

Unexplained disappearance of personal effects or reduction in accounts of significant sums.

The presence of an adult child who is dependent upon his or her parents.

A transfer of assets that is uncharacteristic for the elder.

Significant sums of funds transferred to a charity.

Substantial changes in estate planning documents, such as health proxy, power of attorney, and will.

Signatures on documents that do not appear to resemble the elder’s prior signature.

The elder reporting that they have signed documents, but do not remember what they signed.

The elder being kept isolated and away from family and/or close friends.

The presence of any of the above may not necessarily be indicative of elder abuse, but they may be early warning signs that something suspicious is brewing. It is estimated that there are approximately 5 million allegations of financial abuse in the United States per year.

While some transfers of assets may be properly attended to for asset protection purposes and to avoid probate, it is always wise to contact either an elder attorney or the local senior services agency that has jurisdiction over elders to review the situation. The sooner that elder abuse is caught, the sooner there is a possibility of resolving the situation and reversing whatever wrongdoings have occurred.